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Bermuda’s all-inclusive cruise registration offering

Matthew Ebbs-Brewer

With the cruise season well underway we are seeing a steady stream of tourists visiting the island after having taken advantage of the all-inclusive on-board hospitality that the cruise lines offer their passengers.

This provides a timely opportunity to explore the similarly “all-inclusive” offering that Bermuda can provide to those operators active in — and those wishing to enter — the cruise industry.

Bermuda offers an extremely well-developed legal framework for the formation and development of group structures and enjoys a superb reputation as a successful, credible offshore financial services centre with regulatory integrity.

Those attributes make it a preferred jurisdiction for international businesses and an excellent jurisdiction for those seeking to list on internationally recognised stock exchanges.

While many of the legal benefits of utilising the jurisdiction are well known, Bermuda’s ability to provide a first-class solution for those looking for a suitable jurisdiction to register a cruise ship is perhaps less well emphasised.

The mandate of the Bermuda Shipping Registry is to set the highest standards of operation with respect to ships registered in Bermuda. The registration process is such that, once surveys of the vessel are completed and the original application is received, registration can usually be processed within a matter of days.

Ships that are registered in Bermuda are “British ships” and fly the undefaced Red Ensign.

As a result, a cruise ship registered in Bermuda is entitled to the worldwide protection of the Royal Navy, which may be of particular interest to those cruise lines whose ships operate itineraries in multiple regions.

Cruise ships that are registered in Bermuda are also able to offer legally valid wedding ceremonies and it has been suggested that some established cruise lines have, at least in part, re-flagged their vessels in Bermuda to take advantage of the at-sea wedding market.

The flexibility of Bermuda’s company law is a valuable tool for those seeking to raise equity finance from third party investors to finance a new cruise venture. Parties to a shareholders agreement governed by Bermuda law enjoy a great deal of freedom when deciding upon the terms of any such investment including, for instance, the ability to reserve to shareholders the power to approve key decisions regarding the operation of the group’s business and the allocation of any priority distributions of profits and other gains.

With an established court system, supported by a large body of case law from across the Commonwealth, investors can be comfortable that the rights afforded to them pursuant to the terms of their investment should, provided certain conditions are met and it is not against public policy, be enforceable in an enforcement action in a Bermuda court if the need arises. In a market where high levels of equity are required and are to be put at risk, such comfort is key to securing the required investments.

While securing the initial investment is of obvious importance, investors will also be concerned with exit options and the Bermuda legal system is again well placed to deliver a range of options that are not available across all jurisdictions.

Although the end-goal of an investor may well be to sell its interest by way of initial public offering (IPO) after successfully growing the business to a certain level, Bermuda law also offers the ability for companies to merge and amalgamate, not only with another Bermuda company but with a company located in another jurisdiction.

This flexibility can provide attractive mechanisms for those who would seek to acquire a group to complement or expand their existing cruise offering.

In the event that an IPO is the preferred option, the Bermuda Stock Exchange is the world’s largest offshore fully electronic securities market and enjoys a highly respected international reputation.

With a Bermuda holding company in place, one is then free to establish such additional entities through which associated operations can be carried on and which may or may not be incorporated in Bermuda.

Where such subsidiaries are incorporated, or their assets are located, in Bermuda, the jurisdiction provides a well-established system for the registration of security interests. Companies in Bermuda frequently act as borrowers, guarantors or are otherwise involved as group holding companies.

As Bermuda does not impose withholding tax or other corporate taxes on income or capital gains, a Bermuda company is generally able to service interest payments on any borrowings without the need to gross up amounts payable to lenders to account for tax deductions imposed from a Bermuda law perspective.

Bermuda is also highly respected for its strength in the insurance space and operators of cruise ships are able to incorporate captive insurance companies in Bermuda for the purposes of insuring their fleets and to gain access to the island’s well-established reinsurance products.

In summary, Bermuda is exceptionally well placed to offer a total solution to a potential entrant or existing participant in the cruise industry. Of course, there is also complete freedom to take advantage of the different parts of that offering on an à la carte basis and tailor the transaction to satisfy the legal and commercial needs of the parties.

Lawyer Matthew Ebbs-Brewer is an Associate and a member of the Corporate Practice Group at Appleby. A copy of this column can be found on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.